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 2009 CISA Review Course

Chapter 2
IT Governance
 Course Agenda

• Learning Objectives
• Discuss Task and Knowledge Statements
• Discuss specific topics within the chapter
• Case studies
• Sample questions
 Exam Relevance

Ensure that the CISA candidate…

Understands and can provide assurance that the organization has
the structure, policies, accountability mechanisms and monitoring
practices in place to achieve the requirements of corporate
governance of IT.
% of Total Exam Questions

The content area in this chapter will Chapter 6 Chapter 1

represent approximately 15% of 14% 10%
Chapter 2
the CISA examination
15%
(approximately 30 questions). Chapter 5
31% Chapter 3
16%
Chapter 4
14%
 Chapter 2 Learning
Objectives

• Evaluate the effectiveness of IT governance structure to

ensure adequate board control over the decisions,
directions and performance of IT, so it supports the
organization's strategies and objectives
• Evaluate IT organizational structure and human
resources (personnel) management to ensure that they
support the organization's strategies and objectives
• Evaluate the IT strategy and process for their
development, approval, implementation and
maintenance to ensure that they support the
organization's strategies and objectives
 Chapter 2 Learning
Objectives (continued)

• Evaluate the organization's IT policies, standards,

procedures and processes for their development,
approval, implementation and maintenance to ensure that
they support the IT strategy and comply with regulatory
and legal requirements
• Evaluate management practices to ensure compliance
with the organization's IT strategy, policies, standards and
procedures
• Evaluate IT resource investment, use and allocation
practices to ensure alignment with the organization's
strategies and objectives
 Chapter 2 Learning
Objectives (continued)
• Evaluate IT contracting strategies and policies and
contract management practices to ensure that they
support the organization's strategies and objectives
• Evaluate risk management practices to ensure that the
organization's IT-related risks are properly managed
• Evaluate monitoring and assurance practices to ensure
that the board and executive management receive
sufficient and timely information about IT performance
 2.2 Corporate Governance

• Ethical corporate behavior by directors or others charged

with governance in the creation and presentation of
value for all stakeholders
• The distribution of rights and responsibilities among
different participants in the corporation, such as board,
managers, shareholders and other stakeholders
• Establishment of rules to manage and report on
business risks
 2.3 Monitoring and Assurance
Practices for Board and
Executive Management
• Enterprises are governed by generally accepted good or best
practices, the assurance of which is provided by certain
controls. From these practices flows the organization’s
direction, which indicates certain activities using the
organization’s resources. The results of these activities are
measured and reported on, providing input to the cyclical
revision and maintenance of controls.
• IT is also governed by good or best practices that ensure that
the organization’s information and related technology support
its business objectives, its resources are used responsibly,
and its risks are managed appropriately.
 2.3 Monitoring and Assurance
Practices for Board and Executive
Management (continued)

• Effective enterprise governance focuses individual

and group expertise and experience on specific areas
where they can be most effective
• IT governance is concerned with two issues: that IT
delivers value to the business and that IT risks are
managed
• IT governance is the responsibility of the board of
directors and executive management
 Practice Question

2-1 IT governance ensures that an organization

aligns its IT strategy with:
A. enterprise objectives.
B. IT objectives.
C. audit objectives.
D. control objectives.
2.3.1 Best Practices for IT
Governance
 2.3.1 Best Practices for IT
Governance (continued)

IT governance has become significant due to:

• Demands for better return from IT investments
• Increases in IT expenditures
• Regulatory requirements for IT controls
• Selection of service providers and outsourcing
• Complexity of network security
• Adoptions of control frameworks
• Benchmarking
 2.3.1 Best Practices for IT
Governance (continued)

Audit role in IT governance

• Audit plays a significant role in the successful
implementation of IT governance within an
organization
• Reporting on IT governance involves auditing at the
highest level in the organization and may cross
division, functional or departmental boundaries
 2.3.1 Best Practices for IT
Governance (continued)

• In accordance with the defined role of the IS auditor,

the following aspects related to IT governance need
to be assessed:
– The IS function’s alignment with the organization’s mission,
vision, values, objectives and strategies
– The IS function’s achievement of performance objectives
established by the business (effectiveness and efficiency)
– Legal, environmental, information quality, and fiduciary and
security requirements
– The control environment of the organization
– The inherent risks within the IS environment
 2.3.2 IT Strategy Committee

• The creation of an IT strategy committee is an industry

best practice
• Committee should broaden its scope to include not only
advice on strategy when assisting the board in its IT
governance responsibilities, but also to focus on IT
value, risks and performance
 2.3.3 Standard
IT Balanced Scorecard

• A process management evaluation technique that can be

applied to the IT governance process in assessing IT
functions and processes
• Method goes beyond the traditional financial evaluation
• One of the most effective means to aid the IT strategy
committee and management in achieving IT and
business alignment
 2.3.4 Information
Security Governance

• Focused activity with specific value drivers

– Integrity of information
– Continuity of services
– Protection of information assets
• Integral part of IT governance
• Importance of information security governance
 2.3.4 Information Security
Governance (continued)

Importance of information security governance

• Information security (Infosec) covers all information
processes, physical and electronic, regardless of whether
they involve people and technology or relationships with
trading partners, customers and third parties.
• Infosec is concerned with all aspects of information and its
protection at all points of its life cycle within the
organization.
 2.3.4 Information Security
Governance (continued)

Effective information security can add significant

value to an organization by:
• Providing greater reliance on interactions with
trading partners
• Improving trust in customer relationships
• Protecting the organization’s reputation
• Enabling new and better ways to process
electronic transactions
 2.3.4 Information Security
Governance (continued)

Outcomes of security governance

• Strategic alignment—align with business strategy
• Risk management—manage and execute appropriate
measures to mitigate risks
• Value delivery—optimize security investments
• Performance measurement – measure, monitor and report
on information security processes
• Resource management—utilize information security
knowledge and infrastructure efficiently and effectively
• Process integration – integration of management assurance
processes for security
 2.3.4 Information Security
Governance (continued)
Effective information security governance
• To achieve effective information security governance,
management must establish and maintain a framework
to guide the development and management of a
comprehensive information security program that
supports business objectives
• This framework provides the basis for the development
of a cost-effective information security program that
supports the organization’s business goals.
 2.3.4 Information Security
Governance (continued)

Information security governance requires strategic

direction and impetus from:
• Boards of directors / senior management
• Executive management
• Steering committees
• Chief information security officers
 2.3.5 Enterprise Architecture

• Involves documenting an organization’s IT assets in a

structured manner to facilitate understanding,
management and planning for IT investments
• Often involves both a current state and optimized future
state representation
 2.3.5 Enterprise
Architecture (continued)

The Basic Zachman Framework

Data Functional Network People Process Strategy

Scope
Enterprise Model

Systems Model

Technology Model

Detailed
Representation
 2.3.5 Enterprise
Architecture (continued)

The Federal Enterprise Architecture (FEA)

hierarchy:
• Performance
• Business
• Service component
• Technical
• Data
 2.4.1 Strategic Planning

• From an IS standpoint, strategic planning relates to

the long-term direction an organization wants to take
in leveraging information technology for improving its
business processes
• Effective IT strategic planning involves a consideration
of the organization’s demand for IT and its IT supply
capacity
 2.4.1 Strategic Planning
(continued)

• The IS auditor should pay attention to the importance

of IT strategic planning
• Focus on the importance of a strategic planning
process or planning framework
• Consider how the CIO or senior IT management are
involved in the creation of the overall business
strategy
 Practice Question

2-2 Which of the following would be included in

an IS strategic plan?
A. Specifications for planned hardware
purchases
B. Analysis of future business objectives
C. Target dates for development projects
D. Annual budgetary targets for the IS
department
 Practice Question

2-3 Which of the following BEST describes an IT department’s

strategic planning process?
A. The IT department will have either short-range or long-range plans
depending on the organization’s broader plans and objectives.
B. The IT department’s strategic plan must be time- and project-oriented, but
not so detailed as to address and help determine priorities to meet business
needs.
C. Long-range planning for the IT department should recognize organizational
goals, technological advances and regulatory requirements.
D. Short-range planning for the IT department does not need to be integrated
into the short-range plans of the organization since technological advances
will drive the IT department plans much quicker than organizational plans.
 2.4.2 Steering Committee

• An organization’s senior management should appoint a

planning or steering committee to oversee the IS
function and its activities
• A high-level steering committee for information
technology is an important factor in ensuring that the IS
department is in harmony with the corporate mission and
objectives
 2.5.1 Policies

• High-level documents
• Represent the corporate philosophy of an organization
• Must be clear and concise to be effective
 2.5.1 Policies (continued)

• Management should review all policies carefully

• Policies need to be updated to reflect new technology
and significant changes in business processes
• Policies formulated must enable achievement of
business objectives and implementation of IS controls
 2.5.1 Policies (continued)

Information security policies

• Communicate a coherent security standard to users,
management and technical staff
• Must balance the level of control with the level of
productivity
• Provide management the direction and support for
information security in accordance with business
requirements, relevant laws and regulations
 2.5.1 Policies (continued)

Information security policy document

• Definition of information security
• Statement of management intent
• Framework for setting control objectives
• Brief explanation of security policies
• Definition of responsibilities
• References to documentation
 2.5.1 Policies (continued)

Policy groups to be addressed

• High-level information security policy
• Data classification policy
• Acceptable usage policy
• End user computing policy
• Access control policies
 2.5.1 Policies (continued)

Review of the information security policy

document
• Should be reviewed at planned intervals or when
significant changes occur to ensure its continuing
suitability, adequacy and effectiveness
• Should have an owner who has approved management
responsibility for the development, review and
evaluation of the security policy
• Review should include assessing opportunities for
improvement to the organization’s information security
policy
 2.5.2 Procedures

Procedures are detailed documents that:

• Define and document implementation policies
• Must be derived from the parent policy
• Must implement the spirit (intent) of the policy statement
• Must be written in a clear and concise manner
 2.6 Risk Management

The process of identifying vulnerabilities and threats

to the information resources used by an organization
in achieving business objectives
 2.6.1 Developing a Risk
Management Program

To develop a risk management program:

• Establish the purpose of the risk management program
• Assign responsibility for the risk management plan
 2.6.2 Risk Management
Process

• Identification and classification of information

resources or assets that need protection
• Assess threats and vulnerabilities and the likelihood
of their occurrence
• Once the elements of risk have been established
they are combined to form an overall view of risk
 2.6.2 Risk Management
Process (continued)

• Evaluate existing controls or design new controls to

reduce the vulnerabilities to an acceptable level of
risk
• Residual risk
 2.6.2 Risk Management
Process (continued)

IT risk management needs to operate at

multiple levels including:
• Operational—Risks that could compromise the
effectiveness of IT systems and supporting
infrastructure
• Project—Risk management needs to focus on the ability
to understand and manage project complexity
• Strategic—The risk focus shifts to considerations such
as how well the IT capability is aligned with the business
strategy
 2.6.3 Risk Analysis Methods

• Qualitative
• Semiquantitative
• Quantitative
– Probability and expectancy
– Annual loss expectancy method
 2.6.3 Risk Analysis
Methods (continued)

Management and IS auditors should keep in

mind certain considerations:
• Risk management should be applied to IT functions throughout the
company
• Senior management responsibility
• Quantitative RM is preferred over qualitative approaches
• Quantitative RM always faces the challenge of estimating risks
• Quantitative RM provides more objective assumptions
• The real complexity or the apparent sophistication of the methods or
packages used should not be a substitute for commonsense or
professional diligence
• Special care should be given to very high impact events, even if the
probability of occurrence over time is very low.
 2.7.1 Personnel Management

• Hiring
• Employee handbook
• Promotion policies
• Training
• Scheduling and time reporting
• Employee performance evaluations
• Required vacations
• Termination policies
 2.7.2 Sourcing Practices

• Sourcing practices relate to the way an organization

obtains the IS function required to support the
business
• Organizations can perform all IS functions in-house
or outsource all functions across the globe
• Sourcing strategy should consider each IS function
and determine which approach allows the IS function
to meet the organization’s goals
 2.7.2 Sourcing Practices
(continued)

Outsourcing practices and strategies

• Contractual agreements under which an organization
hands over control of part or all of the functions of the IS
department to an external party
• Becoming increasingly important in many organizations
• The IS auditor must be aware of the various forms
outsourcing can take as well as the associated risks
 2.7.2 Sourcing Practices
(continued)

Possible advantages:
• Commercial outsourcing companies likely to devote more
time and focus more efficiently on a given project than in-
house staff
• Outsourcing vendors likely to have more experience with a
wider array of problems, issues and techniques

Possible disadvantages:
• Costs exceeding customer expectations
• Loss of internal IS experience
• Loss of control over IS
• Vendor failure
 2.7.2 Sourcing Practices
(continued)

Risks can be reduced by:

• Establishing measurable, partnership-enacted shared goals and
rewards
• Using multiple suppliers or withholding a piece of business as an
incentive
• Performing periodic competitive reviews and benchmarking/bench
trending
• Implementing short-term contracts
• Forming a cross-functional contract management team
• Including contractual provisions to consider as many contingencies
as can reasonably be foreseen
 2.7.2 Sourcing Practices
(continued)

Globalization practices and strategies

• Requires management to actively oversee the remote or offshore
locations
• The IS auditor can assist an organization in moving IS functions
offsite or offshore by ensuring that IS management considers the
following:
– Legal, regulatory and tax issues
– Continuity of operations
– Personnel
– Telecommunication issues
– Cross-border and cross-cultural issues
 2.7.2 Sourcing Practices
(continued)

Governance in outsourcing
• Mechanism that allows organizations to transfer the
delivery of services to third parties
• Accountability remains with the management of the
client organization
• Transparency and ownership of the decision-making
process must reside within the purview of the client
 2.7.2 Sourcing Practices
(continued)

Third-party service delivery management

• Every organization using the services of third parties
should have a service delivery management system
in place to implement and maintain the appropriate
level of information security and service delivery in
line with third-party service delivery agreements
• The organization should check the implementation of
agreements, monitor compliance with the
agreements and manage changes to ensure that the
services delivered meet all requirements agreed to
with the third party.
 2.7.3 Organizational
Change Management

What is change management?

• Managing IT changes for the organization
– Identify and apply technology improvements at the
infrastructure and application level
 2.7.5 Quality Management

• Software development, maintenance and implementation

• Acquisition of hardware and software
• Day-to-day operations
• Service management
• Security
• Human resource management
• General administration
 Practice Question

2-4 The MOST important responsibility of a data

security officer in an organization is:
A. recommending and monitoring data security
policies.
B. promoting security awareness within the
organization.
C. establishing procedures for IT security
policies.
D. administering physical and logical access
controls.
 Practice Question

2-5 Which of the following is MOST likely to be

performed by the security administrator?
A. Approving the security policy
B. Testing application software
C. Ensuring data integrity
D. Maintaining access rules
 2.7.7 Performance
Optimization

• Process driven by performance indicators

• Optimization refers to the process of improving the
productivity of information systems to the highest
level possible without unnecessary, additional
investment in the IT infrastructure
 2.7.7 Performance
Optimization (continued)

Five ways to use performance measures:

• Measure products/services
• Manage products/services
• Assure accountability
• Make budget decisions
• Optimize performance
 Practice Question

2-6 An IS auditor should ensure that IT

governance performance measures:
A. evaluate the activities of IT oversight
committees.
B. provide strategic IT drivers.
C. adhere to regulatory reporting standards and
definitions.
D. evaluate the IT department.
2.8 IS Organizational
Structure and
Responsibilities
 2.8.1 IS Roles and
Responsibilities

• Systems development manager

• Help desk
• End user
• End user support manager
 2.8.1 IS Roles and
Responsibilities (continued)

• Data management
• Quality assurance manager
• Vendor and outsourcer management
• Operations manager
 2.8.1 IS Roles and
Responsibilities (continued)

• Control group
• Media management
• Data entry
• Systems administration
 2.8.1 IS Roles and
Responsibilities (continued)

• Security administration
• Quality assurance
• Database administration
 2.8.1 IS Roles and
Responsibilities (continued)

• Systems analyst
• Security architect
• Applications development and maintenance
• Infrastructure development and maintenance
• Network management
 2.8.2 Segregation of
Duties Within IS

• Avoids possibility of errors or misappropriations

• Discourages fraudulent acts
• Limits access to data
2.8.2 Segregation of Duties
Within IS (continued)
 Practice Question

2-7 Which of the following tasks may be

performed by the same person in a well-
controlled information processing computer
center?
A. Security administration and change management
B. Computer operations and system development
C. System development and change management
D. System development and systems maintenance
 Practice Question

2-8 Which of the following is the MOST critical

control over database administration?
A. Approval of DBA activities
B. Segregation of duties
C. Review of access logs and activities
D. Review of the use of database tools
 2.8.3 Segregation of Duties
Controls

Control measures to enforce segregation of duties

include:
• Transaction authorization
• Custody of assets
• Access to data
– Authorization forms
– User authorization tables
 2.8.3 Segregation of Duties
Controls (continued)

Compensating controls for lack of segregation

of duties include:
• Audit trails
• Reconciliation
• Exception reporting
• Transaction logs
• Supervisory reviews
• Independent reviews
 Practice Question

2-9 When a complete segregation of duties

cannot be achieved in an online system
environment, which of the following
functions should be separated from the
others?
A. Origination
B. Authorization
C. Recording
D. Correction
 Practice Question

2-10 In a small organization, where segregation of duties

is not practical, an employee performs the function
of computer operator and application programmer.
Which of the following controls should an IS auditor
recommend?
A. Automated logging of changes to development
libraries
B. Additional staff to provide segregation of duties
C. Procedures that verify that only approved program
changes are implemented
D. Access controls to prevent the operator from making
program modifications
 2.9 Auditing IT Governance
Structure and Implementation

Indicators of potential problems include:

• Unfavorable end-user attitudes
• Excessive costs
• Budget overruns
• Late projects
• High staff turnover
• Inexperienced staff
• Frequent hardware/software errors
 2.9.1 Reviewing
Documentation
The following documents should be reviewed:
• IT strategies, plans and budgets
• Security policy documentation
• Organization/functional charts
• Job descriptions
• Steering committee reports
• System development and program change procedures
• Operations procedures
• Human resource manuals
• Quality assurance procedures
 2.9.2 Reviewing Contractual
Commitments

There are various phases to computer hardware,

software and IS service contracts, including:
• Development of contract requirements and service levels
• Contract bidding process
• Contract selection process
• Contract acceptance
• Contract maintenance
• Contract compliance
 Case Study A Scenario

An IS auditor has been asked to review the draft of an

outsourcing contract and SLA and recommend any
changes or point out any concerns prior to these being
submitted to senior management for final approval. The
agreement includes outsourcing support of Windows and
UNIX server administration and network management to a
third party.

Servers will be relocated to the outsourcer’s facility that is

located in another country, and connectivity will be
established using the Internet. Operating system software
will be upgraded on a semiannual basis, but it will not be
escrowed. All requests for addition or deletion of user
accounts will be processed within three business days.
 Case Study A Scenario
(continued)

Intrusion detection software will be continuously monitored

by the outsourcer and the customer notified by e-mail if any
anomalies are detected. New employees hired within the
last three years were subject to background checks. Prior
to that, there was no policy in place.

A right to audit clause is in place, but 24-hour notice is

required prior to an onsite visit. If the outsourcer is found to
be in violation of any of the terms or conditions of the
contract, it will have 10 business days to correct the
deficiency. The outsourcer does not have an IS auditor, but
it is audited by a regional public accounting firm.
 Case Study A Question

1. Which of the following should be of MOST

concern to the IS auditor?
A. User account changes are processed within three business
days.
B. Twenty-four hour notice is required prior to an onsite visit.
C. The outsourcer does not have an IS audit function.
D. Software escrow is not included in the contract.
 Case Study A Question

2. Which of the following would be the MOST significant

issue to address if the servers contain personally
identifiable customer information that is regularly
accessed and updated by end users?
A. The country in which the outsourcer is based prohibits the
use of strong encryption for transmitted data.
B. The outsourcer limits its liability if it took reasonable steps to
protect the customer data.
C. The outsourcer did not perform background checks for
employees hired over three years ago.
D. System software is only upgraded once every six months.
 Conclusion

• Chapter 2 Quick Reference Review

– Pages 127-128 of CISA Review Manual 2009
• Additional Case Studies
– Case Study B – page 130 of CISA Review Manual
2009
– Case Study C – page 131 of CISA Review Manual
2009
– Case Study D – page 132 of CISA Review Manual
2009